Fair Work Commission’s pay increase to blame for latest RBA interest rate rise: ACCI and economists

With a second child on the way, this Sydney mum hoped to upgrade the family home. But that’s off the table after the latest rate rise. The call that forced the RBA’s hand can now be revealed.

• Rate hikes far from over - analysis

The Fair Work Commission’s big increase to wages forced Philip Lowe to hike interest rates for a 12th time in 13 months, experts and employer groups say.

Some economists on Tuesday night warned that the Reserve Bank of Australia (RBA) did not appear to be done after raising the cash rate to 4.1 per cent – the highest level in more than 11 years.

The decision adds another $75 a month to repayments of a $500,000 mortgage. Once this latest hit kicks in, those instalments will be about $1130 a month higher than before the Governor and RBA began their crusade against inflation in May 2022. Westpac was the first major lender to pass on the increase in full.

In a written statement announcing the hike, Mr Lowe said “the upside risks to the inflation outlook have increased and the board has responded to this.

Last week, the Australian Bureau of Statistics’ monthly consumer price index showed inflation had surprisingly gone up in April.

RBA Governor Philip Lowe is trying to lower inflation. Picture: NCA NewsWire’s Martin Ollman

On behalf of the RBA board, Mr Lowe on Tuesday also expressed concern about pay increases.

The Fair Work Commission (FWC) had on Friday declared a 5.75 per cent lift in minimum wage and award pay rates from July 1. That affects 2.6 million workers — and their employers.

Mr Lowe noted “the annual increase in award wages was higher than” last year’s 5.2 per cent.

Commonwealth Bank’s head of Australian economics Gareth Aird said the FWC’s move “underpinned the board’s decision to hike”.

“We understand for political reasons why the Governor’s statement today did not reference the FWC decision,” Mr Aird said. “But the line that ‘recent data indicate that the upside risks to the inflation outlook have increased and the Board has responded to this’ implies the Board hiked today because of the FWC decision.”

Franklin Templeton fixed income director Andrew Canobi said “the RBA seems to have taken fright from the minimum wage decision.“

Mr Canobi, who scrutinises rate movements as part of his job, said “sadly … the prospects of more to come … worries us deeply”.

ANZ Bank economists are predicting at least one but possibly two further 25 basis point increases. Some other boffins say even more tightening is in store.

Australian Chamber of Commerce and Industry CEO Andrew McKellar said “after last week’s Fair Work Commission decision, it has become increasingly difficult for the RBA to return inflation to target.

ACCI chief Andrew McKellar. Picture: Martin Ollman

“Despite the FWC’s attempts to downplay the implications of its award wages decision on inflation, the risks of broader benchmarking in other wage agreements through the rest of the labour force must be recognised,“ Mr McKellar said.

“This failure to exercise responsibility risks consigning Australia to more economic pain — higher prices, mounting interest rates and fewer jobs.”

In his statement, Mr Lowe went to greater lengths to explain the downsides of persistently high inflation than he had in any of his previous rate rise announcements.

“It erodes the value of savings, hurts family budgets, makes it harder for businesses to plan and invest, and worsens income inequality,” he said.

BIGGER HOUSE PUT ON HOLD

The rate hike is set to put millions of homeowners in pain as they the give up on long-term financial and property goals and scramble to support their families.

Western Sydney mother Tayla Harris was hoping rates would remain stagnant this month, as she and her partner prepare to welcome their second child.

Tayla Harris with her son Lincoln. Picture: Adam Yip

“We were looking to upgrade (to a bigger home) because of the baby coming,” she said. “It seems too much of a risk (now that rates are continuing to rise).”

The teacher’s aid currently owns a home in Blacktown where she lives with her partner and son Lincoln, 2, and while she had visions of her property expanding with her family, it’s a goal she will have to put on hold.

“We’ll be here (Blacktown home) for a while, until there’s a bit more stability,” she said.

The soon-to-be mother of two said she feels lucky to have secured a fixed rate for part of her loan when she first purchased her property.

“Our variable has gone up so we are grateful we fixed some of it when we bought our house,” she said.

In the wake of another rate rise, Ms Harris said she’d “rather not look” at her new repayment bill.

Originally published as Fair Work Commission’s pay increase to blame for latest RBA interest rate rise: ACCI and economists